High net worth investors v average retail investors

Prism

grumiofoundation said:

Prism (for fairness also no source provided, 'average' also not defined)

The average retail investor with Hargeaves Lansdown is invested 69% in equities apparently. If we include cash and property outside of their ISA and SIPP then I imagine it is much less as a percentage

Fair comment.

My average was over 10 years between 2011 and 2020, moved between 66% and 71%

https://citywire.com/wealth-manager/news/sjp-vs-hargreaves-which-offers-more-bang-for-clients-bucks/a1404178#i=4

Malthusian

adindas said:

Who is this guy "Lance Roberts & Adam Taggart"? 

I googled and Adam Taggart appears to be a one-man band financial adviser. So the same level of significance as dunstonh or any IFA you rang up in the phonebook.
He has written a booky-wook with a foreword by notorious get-rich-quick fantasist Robert Kiyosaki, which probably tells you a lot. 
Lance Roberts is a Chief Investment Strategist at a bigger US advisory firm that appears to fall somewhere between a restricted adviser and a DFM in UK terminology. Top 300 in the country apparently. Notably they advise on their website that the route to wealth is apparently to dump investments into cash when the markets are down.

Avoid adding to losing positions. This is called “averaging down” and it rarely is effective.
Remain neutral or long in bull markets. In bear markets increase cash.

Although in literally the next sentence it then recommends you do the exact opposite.

When markets or portfolio positions are trading at extreme deviations from long term trends, do the opposite of “the herd.”

When qualified and regulated advisers in one of the richest countries in the world feel able to confidently talk such total hogwash on their website (and on Yootoob), you can see why markets behave the way they do.

Section62

ChesterDog said:

Type_45 said:

adindas said:

How is your portfolio doing YTD?  

Why the intense focus on YTD?

Because it gets the preferred answer, without having to do much work to obtain it?

bostonerimus

Cus said:

bostonerimus said:

Type_45 said:

High net worth investment strategy v retail investors....

High net worth investing (the top 10 percent of investors):
- Invest in assets which go up in value and have a residual value (residual value means cannot go to zero)
- Invest in their own businesses, their own real estate, and rental properties
- They own a lot of bonds due to the guaranteed payments coming back from them plus their money back so there's no risk
- They only have 20% of their money in equities.  That's the only risk part of their portfolio

The average retail investor:
- 80% equities

I'm doing it wrong then as my mid 7 figure net worth puts me in the top 10% of investors.
My home is a 2 family with a rental apartment in it and it is valued at just over $1M. I live off rental income and a DB pension and keep a lot of cash on hand, but the rest is 85% equities because my spending is such a small fraction of my invested assets that I simply don't worry about money anymore and can afford to take the risk. I got into the "top 10%" by saving lots and using a basic 60/40 portfolio for around 30 years. Nothing fancy or clever, just 30 years of frugality, saving and rebalancing through market turmoil.

Maybe you are doing it 'wrong'. Save $50k per year at 8% for 30 years you end up with a mid 7 figure savings. However at this point maybe you need to move to a HNW attitude of protection, rather than equities. Also, HNW individuals don't save the majority of their income, they spend and enjoy. So to be blunt you are not a true HNW individual with respect to the topic.  You are a retail investor who has been very frugal (rightly or wrongly) 

You make a good point, maybe HNW individual is not just defined by net worth, but also by the attitude to money. I simply don't see the enjoyment in owning a BMW rather than a Honda and after safeguarding my retirement income I don't see a reason to change my approach to investing. I hope to leave money to certain charities and my heirs and I've been giving it away since I retired.

adindas

grumiofoundation said:

Type_45 said:

Prism said:

Section62 said:

Type_45 said:

Prism said:

Bill Gates is a good example of a HNW individual - net worth around $130bn

Real estate - $166m 
Cars - $650k
Art - $130m

Cascade - $30bn - mostly equities
Bill and Melinda Gates Foundation - $50bn - charity
Microsoft stock - $26bn
Other stuff - $19bn - this bit is vague, but could be cash.

Still looks like a high equity exposure to me and very little in real estate, cars and art

Bill Gates is also the largest owner of farmland in America.  

We don't know what he owns.  That breakdown of his assets isn't worth a fig.

You acknowledge it is difficult to find out the extent of what one exceptionally high-profile individual owns. Yet confidently stated (without sources) -

The average retail investor:
- 80% equities

??

The average retail investor with Hargeaves Lansdown is invested 69% in equities apparently. If we include cash and property outside of their ISA and SIPP then I imagine it is much less as a percentage.

"Type_45 is correct" is less wordy.

How do you think that supports you? 

Do you think that 80 = <69???   


You: (note still no source/data provided to support this. 'Average' also not defined)
The average retail investor:
- 80% equities

Prism (for fairness also no source provided, 'average' also not defined)
The average retail investor with Hargeaves Lansdown is invested 69% in equities apparently. If we include cash and property outside of their ISA and SIPP then I imagine it is much less as a percentage

I think it will need to exclude direct investment in properties from the equation.

With properties people will need to borrow, and they are doing it similar with investment with 9-10x leverage from borrowing from the bank as your own money is just 10% (say) and 90% are borrowing the bank money. 

But the main problem in investing in several properties, for retail investors you will need to get multiple mortgages. Also do not forget CGT that you will end up with when selling it. If people could get 3-4 mortgages simultaneously, they would have done that especially when they have skill in finding cheap properties for buy to let and managing renting properties.

adindas

Malthusian said:

"Avoid adding to losing positions. This is called “averaging down” and it rarely is effective. Remain neutral or long in bull markets. In bear markets increase cash."

If both of these guys Lance Roberts & Adam Taggart could spot the bottom of the stock market with high degree of accuracies, they would have become the richest men on earth. Pounding it with the cash they have built enhanced with leverage if they know where the bottom is. They could abandon their money talk show talking a lot of controversy.

These are proven billionaires investors ever known with their own strategies that have been proven to work.

Howard Marks - Distressed debt and companies

Warren Buffett - Value Investing

Banjamin Graham – Father of Value Investing

Charlie Munger – Concentration

Stanley Druckenmiller - Big macro beta

Ray Dalio - Asset diversification. Even Ray Dalio holds various bonds, he never suggests people to only own 20% of equity, and hold 80% in bonds/cash

Peter Lynch - Know what he own, Large Diverse Growth Portfolios

Jim Simons – Genius Quant / Algol trading)

Nathan Rothschild: Devoted contrarian

Elon Musk, Bill Gates, Marc Zuckerberg. Owning a business, genius

Many of  billionaires investors increasing cash position during the bear market, Warren Buffet did that. But amounting cash position to 80% of portfolio is unheard. You definitely cannot get cash amounting 80% in short period of time unless you want to do selling at loss or selling the winner. Also keep in mind these billionaires’ investors are also contrarian to some degrees, they buy good quality companies when there is a blood on the street.

ivormonee

Quite some thread!

The subject of wealth is an interesting one. Some HNW individuals may not feel any particular need to invest, given that they may have more money than they could ever spend. Why invest if you don't need to? But that does not mean they don't own things that would be considered as assets which have a very high value. There were some comments earlier about HNW people "investing" in art or expensive/ classic cars, expensive properties and so on, but are they? Or ar they simply choosing to spend their money on such items because it's a way of enjoying their wealth. If they have a lot of money then why wouldn't they buy a detached property with its own grounds, x number of bedrooms, y number of bathrooms, z number of swimming pools? And would they be driving around in a Vauxhaul Astra or prefer to lavish their driveway, garage(s) etc. with a couple of Ferraris, a Land Rover and a Lambo? Would they leave their lounge walls bare or stick a Van Gogh and a couple of Monets on it?

To say that HNW individuals invest in such items and then making a comparison with "ordinary" retail investors is probably not giving rise to an accurate assessment of how the wealth is spread and what actually constitutes an investment portfolio. For many people, the majority of middle income earners etc., the route to investment is some sort of mix of publicly listed equity and bond exposure for diversification. Some might add a splash of peer-to-peer, or put some money into private equity on the more esoteric end of the scale. If HNW members are looking to invest I think they too would use equities as a considerable element of their portfolio; they might just not go about it in the same way as the ordinary investor. A HNW individual might use a stockbroker with whom they have regular, direct contact who might pick specific stocks for them; the ordinary investor is unlikely to go down such a route and instead use a DIY platform and pick a bunch of funds and some stocks they might like the look of.

It's a totally different approach.

cwep2

One has to think about different perspectives. For most people owning your own house and having enough money to live day to day and pay the bills and make sure you have enough (for you and family) to live a similar life in retirement is the most (or more) than they can hope for. Beyond that it's attaining a higher standard of life to make what time you have more pleasurable, nicer home/car/holidays, setting your children up to be in a better position than you etc.

If you get to be a HNW individual then this is probably already covered, so what do you use excess money beyond this point to do? Well you can stretch the standard of living as far as you like, really nice home(s) in a few places you like to spend time, set up children with a home as well; holidays, first class travel, culture, restaurants, experiences - get to £20mio you've probably got all this covered too.

Beyond that then you're going to want to seriously diversify, give yourself the ability to move anywhere in the world if your home country becomes unfavourable (from a tax/safety perspective), think about legacy (eg Bill Gates with Malaria + other things), and above all protect your status, so safety in assets at this stage is crucial, maybe at the previous stage as well.

There's totally different goals, and how you get (most effectively) to the first goal is probably by loading up investible income in equities, how you protect wealth is by safety, but you already achieved the first goal so your target has changed.

adindas

cwep2 said:

One has to think about different perspectives. For most people owning your own house and having enough money to live day to day and pay the bills and make sure you have enough (for you and family) to live a similar life in retirement is the most (or more) than they can hope for. Beyond that it's attaining a higher standard of life to make what time you have more pleasurable, nicer home/car/holidays, setting your children up to be in a better position than you etc.

This is well explained by Abraham Maslow from his well established theory "The hierarchy of needs"

Beyond that then you're going to want to seriously diversify, give yourself the ability to move anywhere in the world if your home country becomes unfavourable (from a tax/safety perspective), think about legacy (eg Bill Gates with Malaria + other things), and above all protect your status, so safety in assets at this stage is crucial, maybe at the previous stage as well.

The problem here is that someone is saying you could create wealth by only relying on 20% of equity and it is risk free or very low risk quoting random people from the internet, YT while it has never been the case or have been suggested by proven billionaires investors. Those who want to follow this strategy which is coming from random people on the internet, good luck with that. 

You could definitely become multi millionaires by owning Business, owning a lot of properties, land, etc and this is already a public knowledge as there are already evidences of that. Many of Asian young generation tycoons, taipans are made in this ways. But the problem here is that you will need to be born loaded / wealthy, lucky enough to have relatives / friends who could pass the business empire to you, lend you money, and/or mentoring you. For individual investors in Properties you will need to borrow money from the banks, get multiple mortgages. They are doing it similar with investment with 9-10x leverages  from borrowing from the bank as their own money is just 10% (say) and 90% are using the bank money. But both owning a lot of properties, lands and owning business are not risk free either. How many business owners have filed up bankruptcies?? For buy to let, while many people generate wealth in this way, there are a a few cases such as "tenants from hell" (watch this documentaries). So there is also a risk. Not to mention risk for default failing to pay your multiple mortgages.

There's totally different goals, and how you get (most effectively) to the first goal is probably by loading up investible income in equities, how you protect wealth is by safety, but you already achieved the first goal so your target has changed.

Many people change the goal once they reach that state, switching life strategy from wealth creation to wealth preservation. But not all, as some are even getting more greedy. A good recent example of this is a multi billionaires Bill Hwang. There are already some life stories a few traders who are already multi millionaires from the money they make from the scratch ending up losing all of their gain because of greediness.